Liquor tax has slowed growth, industry says

ANNAPOLIS — Representatives from the alcohol industry have told the Maryland Board of Revenue Estimates that the state’s year-old 9 percent sales tax on alcoholic beverages has produced stagnant growth in liquor sales in the past year, while growth in neighboring Virginia and Delaware was above the national average.

Banking and real estate panelists also speaking at the board’s economic advisory forum said state and federal regulations will hinder potential private sector growth as the federal fiscal cliff approaches. The board is composed of the state treasurer, comptroller and secretary of budget and management.

David Ozgo, chief economist for the Distilled Spirits Council of the United States, said the sale of distilled spirits in Maryland has grown just two-tenths of a percent in the past year, well below the national average of 3.1 percent.

The owner of the Fish Tales restaurant in Ocean City told the board that he has also seen a decline in the alcohol ordered by his customers, but Ozgo said the problem is concentrated in the decreasing sales in package stores.

“Distilled spirits growth in Maryland has been anemic so far in 2012,” Ozgo said. “Nationwide, off-premise sales are up 3.3 percentage points. But here in Maryland, we are actually off slightly.

There is very, very strong evidence that poor performance of Maryland package stores is a direct result of the Maryland decision to increase the alcohol sales tax to 9 percent in 2011.”

The liquor sale decline in Maryland can be directly associated with the sale increases in neighboring states, Ozgo said. Virginia’s off-premise sales are up 5 percent in 2012, while Delaware has seen an 8.8 percent rise.

“So it is pretty clear to me that what is going is a lot of Virginia residents who come into Maryland in search of low prices are staying home,” Ozgo said. “In Maryland, consumers are voting with their feet and making purchases in Delaware.”

The CEO of Easton Bank and Trust, Mike Menzies, said the new standardized approach in how the banks count assets along with state regulation policies have a distinct impact on the loans they can lend to small businesses.

“State code mandates and code enforcement policies have become an extraordinary burden and, in some cases, blocking the formation of small business,” Menzies said.

David Hillman, the CEO of Southern Management Corp., the largest privately owned residential property management company in the mid-Atlantic region, said that the regulations have made it harder to get larger-sized loans for construction projects.

“Because of regulation, where we used to be able to borrow 70, 80 or 90 percent of the cost of a new project construction, now, we are able to borrow only 50 or 60 percent,” said Hillman.

Menzies said that regulations associated with the federal Credit Card Act, the Fair and Accurate Credit Transactions Act and Dodd-Frank Act have placed large burdens on banks, forcing them to devote more human resources toward regulatory compliance than is necessary.

“I would say that seven years ago, I would spend 20 to 25 percent of my time as CEO of a small company dealing with regulatory issues,” said Menzies. “I spend no less than 50 or 60 percent of my time today dealing with regulatory issues. It’s unbelievable.”

Michael Gordy, senior vice president of lending at the State Employees Credit Union, agreed.

Comptroller Peter Franchot said at the end of Wednesday’s meeting that the state will need to look for ways to provide a spark for the private sector as sequestration cuts in federal spending threaten the security of roughly 100,000 federal jobs as well as other industries in Maryland that feast off federal contracting.

Pat Donoho, president of the Maryland Retailers Association, told the board that since Maryland ranks first in the nation in online shopping, the state is losing millions of dollars in potential sales tax revenue.

Although consumers are supposed to file and pay taxes on items purchased on the Internet, many consumers are unaware of the rule and the enforcement has not been strict.

“[Online stores] should charge and remit the sales tax,” Donoho said, repeating a stand consistently taken by Maryland’s brick-and-mortar stores.